The U.S. Supreme Court agreed to use a shareholder lawsuit against National Australia Bank Ltd. to consider how far U.S. securities laws extend overseas.
The justices said Monday that they will review a federal appeals court decision that the suit by Australian stockholders of NAB was beyond the jurisdiction of U.S. courts.
The case, which the justices will decide by July, becomes one of the top business disputes of the nine-month term. The U.S. Chamber of Commerce and the Securities Industry and Financial Markets Association filed briefs when the dispute was before the 2nd U.S. Circuit Court of Appeals in New York.
"People have been waiting for the court to take on this question for more than 30 years," said Donald Langevoort, a securities law professor at Georgetown University in Washington. "It's amazing that it's taken the court so long to reach such a profoundly important question."
The Supreme Court agreed to hear the appeal against the recommendation of the Obama administration, which urged the justices not to hear the case.
The investors say HomeSide Lending Inc., a former NAB mortgage service subsidiary in Florida, fraudulently overvalued its assets, eventually forcing $2.2 billion in writedowns.
NAB, of Melbourne, disclosed in 2001 that interest rate assumptions used by HomeSide in a valuation model were incorrect and caused inflated estimates of mortgage servicing fees. Writedowns in 2001 caused the bank's American depositary receipts to fall more than 11%.
The shareholders contend that the core of the alleged fraud occurred in the United States, giving American courts jurisdiction to consider the case and apply U.S. securities laws.
"Every false statement made by NAB concerning HomeSide's operations, results and value was a repetition of the false financial information that HomeSide concocted in Florida for the very purpose of misleading NAB's shareholders," the appeal argued.
The 2nd Circuit rejected that reasoning, saying in its 3-to-0 ruling that NAB compiled and issued its public statements in Australia.
"The actions taken and the actions not taken by NAB in Australia were, in our view, significantly more central to the fraud and more directly responsible for the harm to investors than the manipulation of the numbers in Florida," the three-judge panel said.
NAB told the Supreme Court that "every single one" of the alleged misstatements and omissions were made in Australia by the parent company. NAB acquired HomeSide in 1998, then sold it to Washington Mutual Inc. in 2002.
Justice Sonia Sotomayor, who served on the 2nd Circuit while it handled the case, did not take part in Monday's decision to take up the appeal. As is the Supreme Court's practice, she gave no explanation.
Courts around the country have used different standards to determine whether judges can consider "foreign cubed" lawsuits, those that involve non-U.S. plaintiffs, corporations and markets.